Hank Hayes

An easy last-minute gift option, prepaid debit cards show signs of being the next big financial services product.

A 2012 analysis prepared by the Federal Reserve Bank of Philadelphia suggested so-called “open loop reloadable” prepaid debit cards are already a “mainstream payment instrument” that can no longer be ignored.

The amount of money put on those reloadable prepaid debit cards almost tripled from 2008 to 2012 and rose to $76.7 billion, according to the Mercator Advisory Group Inc. based in Maynard, Mass.

Tennessee’s financial institutions currently see the reloadable prepaid debit cards as a relatively new idea, with most of them still used primarily as gift cards.

“I don’t think the idea of a reloadable (debit) card has caught on very much,” said Timothy L. Amos, senior vice president and general counsel of the Tennessee Bankers Association. “People buy them as a gift and give them to somebody, and then they use virtually all the money quickly, and then they don’t think to reload them. ... It might start to catch on ... but it’s a slow-moving product.”

However, five of the nation’s biggest banks — Wells Fargo, PNC Bank, Regions Bank, JPMorgan Chase & Co. and U.S. Bank — have entered the prepaid market, and all offer varying degrees of free access to their large networks of ATMs, according to Bankrate.com.

The National Foundation for Credit Counseling and the Network Branded Prepaid Card Association released these findings on prepaid debit cards while conducting their 2013 Financial Literacy Survey:

• Four in five prepaid debit card users felt more in control of their money with a prepaid debit card than a debit card connected to a checking account at a bank or credit union.

• Those who regularly use prepaid debit cards did so primarily because of the convenience factor. Nearly half of the survey respondents said prepaid debit cards are safer than carrying cash, and one in four respondents said they use prepaid debit cards because they have no other payment or banking options.

• More than one in four respondents said their prepaid debit card currently offers overdraft protection.

But those prepaid debit cards come at a cost that can vary greatly, according to a Bankrate.com survey.

Bankrate found that switching from a standard checking account to a prepaid debit card may mean paying for services that consumers are accustomed to getting for free, including paper statements, debit card activation, ATM balance inquiries, and even making a PIN-based point-of-sale purchase.

In addition, Bankrate discovered many prepaid debit card users also pay a monthly maintenance fee — ranging from $3 to $9.95 — that most checking account holders dislike. Bankrate also found that all the prepaid debit card services they surveyed assessed an out-of-network ATM fee ranging from $1.50 to $2.75 for using another bank’s ATMs.

A Consumer Reports study said banks believe those fees are acceptable because prepaid cards are exempt from federal consumer protection laws applying to bank debit cards.

Still, prepaid debit cards are viewed as an alternative for so-called “unbanked” people.

The Federal Reserve Bank of Philadelphia analysis said the cards are used primarily for cash withdrawals, and point-of-purchase transactions.

“The two major reasons for not having a checking account are: You can’t qualify for a checking account, or two, you previously had a checking account and were frustrated by high fees and repeated overdrafts,” said Tom Feltner, director of Financial Services at the Consumer Federation of America. “Prepaid cards don’t check your credit, and most of them … allow you to only spend what you have, and I think that’s the reason why they’re a rapidly growing transaction product.”